Insiders vs. outsiders in economics

Outsiders have their own form of confidence. When they look at the Insider, they think that they see a naked emperor. They understand the Insiders’ methods well enough. But the Outsiders are convinced that these methods are narrow-minded and limiting.

During the housing bubble, when he wanted to confirm his hypothesis that home buyers were expecting unsustainable rates of house price appreciation, Shiller took surveys of consumers, inquiring how much they expected prices to rise. He found that, indeed, they were expecting home prices to go up 10 percent per year, consistent with then-recent experience but way out of line with overall inflation trends. Still, the idea of examining consumers’ expectations by asking them was a flaky thing for an economist to do. If you had posed the problem to nearly any other economist, the response would have been to write down a mathematical model, perhaps involving complex stochastic calculus. This model would have been presented to you as the way that consumers ought to form their expectations, and therefore one could presume that this is how they did form their expectations.

In the playground politics of macroeconomics, even a Nobel Prize may not grant you membership in the Insider club. For that, you have to conform to the norms of the Insiders, which means above all treating Stan Fischer, Olivier Blanchard, Ben Bernanke, and other certified members of the club with the utmost respect. If you question their wisdom, then you are automatically an Outsider. When Stan Fischer makes a mental tally of the views of “every respectable economist,” yours will not count.